HERE AND NOW, APPLE STOCK LOOKS CHEAP

I’ve been a fan of Apple’s products since high school, and I own far too many of them. But I was never going to buy its stock.

After all, technology moves too fast for the conservative small investor. Anybody retiring on their Wang Laboratories stock today? OK, that’s not fair. How about Eastman Kodak? I didn’t think so.

But when Apple showed up on my investment radar as underpriced in February 2012, I bought some at $459 a share. (The stock closed Tuesday at $406.13 before the release of second-quarter results.) The shift in my reasoning explains why millions of Americans own a piece of Apple in their mutual funds — whether they know it or not — and what separates great companies from passing fads.

Don’t get me wrong. A speculative mood swing explains much of Apple’s astonishing rise from $100 a share in 2009 to $700 last year, briefly making Apple the world’s most valuable company in the eyes of the stock market. Yet there are good reasons to think the company is a bargain, particularly after its 30 percent fall in value.

The late CEO Steve Jobs created Apple’s iconic status with consumers by insisting on great marketing and fanatical devotion to product design. Practically everybody has a story about the 4-year-old who figured out Mom’s new iPad in five minutes while Dad was looking in the packaging for the missing and completely unnecessary users’ manual. Jobs didn’t do this alone, and the team he built is largely intact more than a year after his death.

For investors, customer loyalty and brand recognition mean a great deal. It’s how Coca-Cola has been able to sell flavored soda water at an enormous profit since 1886.

Brands are notoriously hard to value. And investors clearly aren’t giving Apple much credit for brand loyalty in the future.

Apple trades for about nine times its earnings over the last 12 months, or roughly half the 18.25 price-to-earnings ratio of the companies in the S&P 500.

After regular trading closed Tuesday, the Cupertino-based company reported that sales of its key iPhone and iPad products were up sharply, while gross profits fell to 37.5 percent from 47 percent a year ago.

Most analysts say that Apple’s discount to the rest of the market exposes a deep pessimism that CEO Tim Cook can deliver the string of hit products that Jobs was able to manage in recent years. They may be right. But meanwhile, Cook is running a remarkable company.

Apple is among the world’s most efficient companies. Its return on investment, an excellent measure of how well managers deploy shareholders’ cash, was a staggering 33 percent over the past 12 months. Income was nearly $550,000 per employee. That dwarfs $208,000 per employee at Google, a software company that doesn’t have the logistics and supply-line management that Apple has to manage.

Speaking of logistics, Apple’s inventory turns over an astonishing 87 times a year, the kind of velocity you’d expect from somebody selling ice cream in August without a refrigerator. Not incidentally, it was Cook who built this world-class manufacturing supply line as chief operating officer.

On the balance sheet, Apple has no debt and its cash hoard was projected to hit $170 billion this year, before Tuesday’s announcement that it was raising its dividend — yet another reason to own the stock.

The late Benjamin Graham, the father of securities analysis, compared the stock market to an irrational business partner who would offer to sell his shares at a sky-high price one day and then, in a fit of depression, reduce it deeply the next. His strategy was to determine the intrinsic value, and buy when the price dropped well below that value.

At its giant size, Apple will be hard-pressed to keep growing profits the way it has over the past decade. And nobody knows whether it can beat competitors to the market with great new products. But these unknowables apply to every other company in the stock market.

In the here and now, Apple is far better managed and its stock much cheaper than most of its peers. I hope it crashes, so I can buy some more.